Requirements for Small Businesses to Trade with Kenya Government

Kenya has established itself as a market-based economy and there is a general consensus of it being East Africa’s economic, commercial, and logistics hub. With the strongest industrial base in the region, there has been more people are investing in Kenya and locals setting up large and small businesses to capitalize on Kenya’s strategic location, comprehensive infrastructure, and position as a regional financial center.

An additional attraction for a potential investor is the strength of Kenya’s human resources. Kenya’s population in 2018 is estimated to be approaching 51 million. Its urban areas, particularly Nairobi, are noted for their large number of well-educated English-speaking, and multi-lingual professionals, and for their strong entrepreneurial tradition. Kenya also has a very “young” population with almost 70 percent of its people being under the age of 35.

However, before beginning operations in Kenya there are a few legal requirements small businesses need to meet to be allowed to operate in the country. In order to encourage setting up of businesses in the country the government has set up well defined structures to make the process as smooth as possible for anyone considering to take the leap of faith of investing into Kenya.

Step 1: Reserve Company Name

Obtain approval for the company name from the Registrar of Companies which will take about 3 days at a cost of KES 100 per name reservation for 30 days and can be renewed for a similar period at a similar cost

Step 2: Memorandum and Articles of Association Assessment

Stamp the memorandum and articles and a statement of the nominal capital which takes 8 days. It will cost 1% of nominal capital and KES 2,005, stamp duty on Memorandum and Articles of Association.

Comment:

Effective January 1, 2005, the Kenya Revenue Authority (KRA) took over stamp duty collection from the Ministry of Lands and Housing. As an administrative requirement, the KRA now requires the personal identification numbers (PINs) of all parties on whose behalf duty-stamped documents are submitted. Documents must be first assessed by the Stamp Duty Office before payment can be processed by the KRA-designated banks. The process has lengthened initially to about 2 weeks because the Stamp Duty Office waited to receive confirmation of bank payment after clearance of funds. However, the time has reduced in 2008 as a result of better communication between the Ministry of Lands and housing and Kenya Revenue Authority (KRA) to 5-10 days. Bank handling charges of KES 100 for each transaction are also due.

Step 3: Stamp duty

Payment of stamp duty at bank which takes 1 day (included in the previous procedure) at a cost of KES 100 bank commission.

Step 4: Declaration of compliance

Declaration of compliance (Form 208) is signed before a Commissioner of Oaths /notary public which takes 1 day to complete at a cost of KES 200.

Comment:

According to the Companies Act (Cap. 486), an advocate engaged in the formation of the company or a director or company secretary named in the Articles must sign Form 208, the declaration of compliance, which accompanies the registration documents to be submitted to the Registrar of Companies. (Simultaneous with procedure 2)

Step 5: Deed

File deed and details with the Registrar of Companies at the Attorney General’s Chambers in Nairobi which takes between 7 and 14 days at a cost of KES 5,893

The founder must file the incorporation deed and the required documents and forms (listed below) with the Registrar of Companies, which includes:
– Stamped memorandum and articles of association.
– Statement of capital.
– Form 201, Notice of Situation of Registered Office.
– Form 203, Particulars of Directors and Secretary.
– Form 208, Declaration of compliance with the Companies Act.
– Copy of the company name approvalFee schedule for registration:
– For the first KES 100,000: KES 2,200.
– For every KES 20,000 after the first KES 100,000: KES 120, subject to a maximum of KES 60,000.
– Filing fee for three forms: KES 600.

Step 6: PIN

Register with the Kenya Revenue Authority for a PIN which takes a day at no cost.

Registration for a personal and a company identification number (PIN) is required to register for the VAT (PIN certificates of at least two directors or 2 shareholders or a director and the secretary are required), the local service tax, and the pay-as-you-earn (PAYE) tax. The founder must file the certificate of registration and a copy of the memorandum and articles of association.

Step 7: VAT Certificate

Register with the VAT office which will take you 1-2 days at no charge.

The application for a VAT Certificate must be supported with application form, copies of the Certificate of Incorporation, the PIN Certificate for the company and 2 of its directors and Memorandum and Articles of Association.

Step 8: Business permit

Apply for a business permit which takes 5 days at a cost of KES 5,000.

The fee to apply for a business permit varies depending on the type of business, number of employees, and size of the company’s premises. The fee is payable to the Nairobi City Council, Licensing Department. The City Council will issue a business permit.

Fee schedule for business permit:
– Medium trader, shop, or retail service from 5 to 20 employees and/or premises 50–300 sq. m. (fair location): KES 5,000.
-Mid-size business of 50 employees and premises 300 sq. m.: about KES 20,000 to KES 50,000, depending on the nature of the business.

The Licensing Laws (Repeals and Amendments) Act , 2006 (enacted in December of 2006 and came into effect on May, first, 2007), amends the Local Government Act (Cap. 265) by reducing the number of business permits required for a distributor of goods or provider of services to carry on its business activities. Applicants having obtained a business permit to operate from one local authority will not be required to obtain another business permit in another local authority. In addition, business permit applicants will have an opportunity to elect whether to apply for a 1- or 2-year permit. The 2006 law also eliminated the requirement to obtain a trading license in addition to the permit.

Step 9: NSSF registration

Register with the National Social Security Fund (NSSF) which should take a day with no charge.

The National Social Security Fund provides the employee with a lump-sum retirement benefit. Historically, the rate of return paid by the state is considerably less than that achieved by private schemes, but participation is mandatory. The employer pays a standard contribution of about 1% of salary, subject to a maximum of KES 400 per month. Half the contribution is deductible from the employee’s salary. The precise amount of the contribution (where less than the maximum) is determined by reference to salary bands.

Step 10: NHIF registration

Register with the National Hospital Insurance Fund (NHIF) which should take 1 day at no charge.

An employee contributes a fixed sum to the National Hospital Insurance Fund (NHIF), which is deducted by the employer from the employees’ salary. The maximum contribution is KES 320 per month. The contributions are used to offset the costs of medical treatment, but only cover a fraction of actual costs. Hence, many companies provide employees with medical insurance.

Step 11: Pay as you earn (PAYE)

Register for PAYE which will take 1 day at no charge.

Step 12: Company seal

Make a company seal after a certificate of incorporation has been issued which takes 2 days at a cost ranging between KES 2,500 and KES 3,500

Seals are made by private entities who require sight of a copy of the certificate of incorporation

On paper, your business is now ready to commence operations and start trading, there may be other undocumented but widely known hurdles, but these should get you going by the book.